How Do You Buy a Business?

Business Dictionary

December 05, 2013

Starting a new business can be a long and drawn out affair for most people, with the fruits of your labor not paying off until the business becomes profitable. Buying an existing business holds many advantages for entrepreneurs who want to avoid the time, effort and expense of starting a new business.

One of the most important factors to consider before buying a business is your familiarity with the business you plan to purchase. The more familiar you are with the type of business you plan to purchase, the better your chances for success.

Factors to Consider Before You Buy a Business

Once you have found the type of business you feel comfortable running, a number of other considerations should be taken into account before you buy a business.

These include:

Has the business you intend to buy been profitable, or are you buying a business in trouble? Find out as many details about the business as you can.

Review

the business' financial records, contracts and leases. Tax returns for the last five years should also be reviewed to determine what kind of tax liabilities could be incurred.

In addition, a thorough review of the business' bank accounts, sales records, customer lists, payroll benefits and employee pension plans, as well as an employee roster should be taken into account before committing to purchasing the business.

Get Professional Assistance

Nevertheless, unless you are a lawyer or an accountant, reviewing all of the documents of an existing business before making an offer could be overwhelming.

Enlisting the services of a competent attorney and accountant could save you considerable time and expense. Depending on the size and nature of the business you plan to buy, other professionals may also be needed to consult.

After doing all the preliminary work, you can then make an offer through a letter of intent, followed by a formal offer of cash or other assets. You should have all your bases covered before you make a formal offer.